After weeks of deliberation, post the announcement of $16 billion Walmart-Flipkart deal, media reports now suggest that SoftBank has finally decided to sell its entire 21 per cent stake in Flipkart to Walmart. But earlier reports stated that SoftBank CEO Masayoshi Son may not sell the entire stake in Flipkart to Walmart because he wanted to avoid the high tax liability post the sale and also does not want to miss on the high valuation that Flipkart may offer in the future. However, as SoftBank's exit from Flipkart is almost confirmed, experts with whom THE WEEK spoke to do feel that after the stake sale SoftBank will be liable for high tax.
S. Subramanyam the CEO of Bengaluru-based company Ascent HR said that SoftBank will need to shell out a substantial sum as the tax on capital gains made on the sale of its shares held in the Singapore entity of Flipkart.
“Prima facie this appears dissuasive for SoftBank, but one should not dismiss the underlying asset of Flipkart in India which is the sole reason for such a valuation as a phenomenally-growing asset. Every commercial transaction will be governed by the applicable tax regulations and merely the reason that the transaction suffers tax, does not diminish the value for the holder of the asset. Hence, it may not be imprudent to levy such tax. At the same time, it is fictional to say that investor interest would diminish owing to such practices and particularly so when the investor has earned over 60 per cent in appreciation under a year,” Subramanyam told THE WEEK.
Subramanyam also said that India would continue to attract investments based on its potential of the large consumer base as well as liberal policies of FDI and pinpricks of tax against super profits would not hurt.
Another expert L. Badri Narayanan, Partner at Lakshmikumaran and Sridharan pointed out that as SoftBank has decided to sell its stake in Flipkart it will be liable to pay short term capital gains tax in India (assuming the shares are held for a period which is less than 24 months) in terms of the fact that the substantial value of shares of Flipkart Singapore is derived from assets located in India.